What determines the cash value of a Variable Life Insurance Policy?

The cash value of a Variable Life Insurance Policy is determined by the performance of separate accounts. In this type of policy, the cash value is not fixed; instead, it varies based on the investment performance of the underlying assets selected by the policyholder. These separate accounts can include various investment options, such as stocks, bonds, or mutual funds, depending on the policyholder's choices.

As the investment choices within the separate accounts appreciate or depreciate, the cash value of the policy will fluctuate accordingly. This characteristic reflects the nature of variable life insurance where the policyholder has control over the investment strategy and accepts the risks and rewards associated with their selections. It is essential for policyholders to understand that the cash value can grow significantly if the investments perform well, but it can also decrease if the investments perform poorly, distinguishing it from other types of life insurance policies that have guaranteed cash values.